WEDGE MARINE LTD v. ORIENTAL UNION HOLDINGS LTD AND OTHERS

HCCL 18/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 18 OF 2002

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J U D G M E N T

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Introduction

1. The plaintiff herein, Wedge Marine Ltd, the disponent owner of the vessel M.V. “Cape Horn”, brings this action to enforce that which is said to be a guarantee of a charterer’s payments under a charterparty fixed on 10 December 1998 relating to the chartering of the “Cape Horn”.

2. The plaintiff claims that the guarantee was given by the 1^st defendant, Oriental Union Holdings Ltd, which at the material time was known as Ideal Pacific Holdings Ltd (‘IPH’).

3. The 2^nd defendant, Simpson Spence & Young Hong Kong Ltd (‘Simpson Spence’), is the broker through which the charterparty was negotiated, Simpson Spence acting for charterers, Oriental Union Shipping and Chartering Ltd (‘Oriental Union’), a subsidiary of the 1^st defendant.

4. Negotiations for the charterparty were conducted throughout between Simpson Spence of the one part and owner’s brokers, Carriers Chartering of Piraeus (‘Carriers’).  It is said that Simpson Spence acted as the agent of IPH for the giving of the guarantee, alternatively that in so giving the guarantee it acted in breach of warranty of authority.

5. The 3^rd defendant, Mr Bhavnani, was the individual at the charterers who is said to have given instructions to Simpson Spence.  Proceedings against him personally have been brought on the alternative basis that he was the true principal to the guarantee, the existence or otherwise of which is the primary issue for determination in this case.

6. This is a case which falls for decision on the documents.  One witness only gave viva voce evidence, namely Mr Andreas Klitsas of owner’s brokers, Carriers.  None of the defendants called any witness evidence.

The factual background

7. By the terms of the fixture concluded on 10 December 1998 the plaintiff chartered its Cyprus flag cape-sized bulk carrier “Cape Horn” to the charterers, Oriental Union, for a “period timecharter trip about 90/maximum 150 days … trading worldwide with intended cargo of coal and iron ore…” with delivery “on dropping last outward sea pilot Qingdao…” and with redelivery “on dropping last outward sea pilot one safe port Singapore-Japan range including People’s Republic of China…”.

8. The fixture was on the terms and conditions of the New York Produce Exchange Form of charterparty, with amendments and rider clauses.  Charterhire of US$10,075 per day was payable every 15 days in advance.

9. The vessel was delivered upon dropping the pilot off Qingdao on 27 December 1998, and upon instructions of the charterers proceeded to the nearby port of Rizhao on 2 January 1999 bound for Singapore, and thence for Europe via the Suez Canal.

10. Disputes arose between owners and charterers.  The first hire payment was made late, and the charterers failed to pay any subsequent hire payment.  The plaintiff complained that the charterers had issued bills of lading for the ports of Bakar in Croatia and Koper in Slovenia which were outside the trading range permitted by the charterparty, which specifically excluded trading to the Adriatic Sea other than Italy.

11. Relations between the owners and the charterers deteriorated, and the plaintiff, unpaid for charter hire since the initial payment, purported to exercise a lien on sub-freights and on the cargo in respect of the unpaid hire.

12. On 12 February 1999, while the vessel was lying off Bakar awaiting discharge, the plaintiff accepted the charterer’s failure to pay hire as a repudiation of the charterparty, and made arrangements to discharge the cargo at Bakar and Brindisi between 18 March and 5 April 1999.

13. The dispute between the plaintiff and the charterers was referred to London arbitration, and on 30 October 2000 an arbitration award was made in favour of the plaintiff in the sum of US$324,894.07, together with compound interest on that sum at the rate of 7.5% per annum and costs.

14. The plaintiff has been unable to enforce that award against Oriental Union, a company incorporated in the British Virgin Islands.  Accordingly it now seeks to recover against the alleged guarantor, IPH, or its broker, Simpson Spence.  Hence this action.

The primary issue: the alleged guarantee

15. The guarantee is said by the plaintiff to have come into existence during the course of the telex negotiations conducted between chartering brokers, Simpson Spence in Hong Kong and Carriers in Piraeus.  These negotiations were fundamentally concerned with the terms of the fixture, as eventually concluded, between the plaintiff and the charterers.

16. The plaintiff’s contention is that the 2^nd defendant, Simpson Spence, purported to conclude a guarantee on behalf of the 1^st defendant, IPH, but that if and in so far as it had no authority so to do, then the 2^nd defendant broker must assume liability on the basis of its breach of warranty of authority.

17. The first question for determination, therefore, is whether a guarantee came into existence at all, and if so, where?

18. It is common ground that if there was a guarantee, it is found in, or evidenced by, the fixture recap telex of 11 December 1998.  This was recap telex VDM 9676 sent by Mr Ted Chan of Simpson Spence to Mr Andreas Klitsas of Carriers, the relevant part of which reads thus :

“HEREWITH PLSD TO RECAP OF CLEAN FIXTURE ASF:

ALL NEGO N EVNTL FIXTURE TO REMAIN STRICTLY PRIVATE N CONFIDENTIAL AND NOT TO BE REVEALED TO ANY THIRD PARTY.

--ACCT ORIENTAL UNION SHIPPING AND CHARTERING LTD.  PERFORMANCE AND PAYMENTS TB GUARANTEED BY IDEAL PACIFIC HOLDINGS LTD OF BERMUDA.

M/V ‘CAPE HORN’ EX ‘PORTLAND STAR’

..............”

19. The crucial issue is whether the words used in that recap telex, namely “performance and payments tb guaranteed by Ideal Pacific Holdings Ltd of Bermuda” constitute operative words of guarantee, or were they no more than a contractual undertaking given on behalf of the charterers to procure the provision of a guarantee by IPH?

20. In answer to this question Mr Coleman for the plaintiff says ‘yes’, Mr Sussex SC for Simpson Spence says ‘No’, and Mr Mumford SC for IPH says that his client does not know anything about this, and questions why, in the circumstances, it is impleaded at all.

21. As earlier observed, this is a case which can be decided on the documents, in particular the telex negotiations, which I have had the advantage of being taken through in detail.  Upon the primary issue before the court the evidence of the only witness, Mr Klitsas, could not assist, although he rehearsed the history of the matter, and further gave evidence of his understanding that Simpson Spence had been acting not only for charterers, Oriental Union, but also for IPH qua guarantor.

22. As Mr Coleman correctly accepted in final submission, should this court hold that in fact there was no operative guarantee, that is the end of the matter in these proceedings.

23. Mr Coleman addressed the court extensively upon the ambit of the factual matrix which he asserted it was proper for the court to take into account, including Mr Chan’s authority to act not only for the charterer but also, through Mr Bhavnani, for IPH.  He noted that the charterer, Oriental Union, was presented on the available documentation as the “chartering division” of the listed group under the holding company, IPH, a chartering division that was run by Mr Bhavnani, who specifically was employed by Oriental Union, and whom during the arbitration proceedings himself had represented the charterer.  He further asserted that the bank reference Mr Chan had sent for IPH could only have come from IPH, and that when Mr Chan (who despite being present in court on the 2^nd defendant’s subpoena had not been called) had raised IPH as the entity to give the guarantee there was no suggestion that he was merely passing on information.  Moreover, said Mr Coleman, on the face of the discovered correspondence Simpson Spence plainly had considered after the event that an operative guarantee had been put in place.  And in terms of the position of IPH, its case appeared to turn on its new management’s assertion, in the face of the plaintiff’s claim, that it had “not been able to locate any performance guarantee related to [the charterer]”, which was very different from an assertion that the management at the time had not authorized the giving of a guarantee, whilst the 1^st defendant’s case now appeared to be that such a guarantee never ultimately had been sought.

24. Against this background, submitted Mr Coleman, the documentary evidence before the court revealed that which undoubtedly had occurred, and in the context of all that had gone before it was plain as a pikestaff that, as Mr Klitsas had confirmed in evidence, including evidence of a telephone call between himself and Mr Ted Chan, that when on 7 December 1998, by telex of that date, owners had “hereby” lifted their subject approval of charterers on the understanding/agreement that “Ideal Pacific Holdings Ltd of Bermuda guarantee performance and payments”, there could be no other reasonable inference than that this had occurred only on the basis that IPH guaranteed performance and payment under the charterparty. 

25. It was, he argued, precisely this situation that had enabled the fixture to proceed at all, and for the terms to be negotiated and concluded, culminating in the recap telex of 11 December 1998.  Hence, there could be no doubt, on the basis of the material as a whole, that the use of the phrase “performance and payments t[o] b[e] guaranteed” demonstrated that a guarantee was in place, and that this did not refer to the provision of a future and separate guarantee.

26. For the 2^nd defendant Mr Sussex maintained that in the circumstances of this case the plaintiff was inviting the court to go too far.  The thrust of his submission was that however hard Mr Coleman banged the merits drum, and however unfortunate it now may be for the plaintiff, the hard fact remained that the words used on the face of the relevant telex of 11 December 1998 clearly connoted that the guarantee would be something that was to be provided in the future, and that the words emanating from the 2^nd defendant broker amounted to no more than an undertaking, contractually enforceable against the charterers, to procure or to provide a guarantee from the 1^st defendant.  However, following this undertaking the plaintiff, for whatever reason, whether by mistake or through simple oversight, had made no attempt thereafter to obtain such a guarantee, and the words on the face of the recap telex patently did not, and could not, be made to achieve what had not been done.

27. Upon the application of established principles, submitted Mr Sussex, the beguiling invitation of Mr Coleman to take into account the various matters he had canvassed should be resisted; subjective intention was inadmissible, that which the parties understood to have been effected equally so, as was subsequent conduct as an aid to construction, and in terms of construing the words on the printed page the restricted ambit of the ‘factual matrix’ was well-established on the authorities.

28. On behalf of the 1^st defendant, the alleged guarantor, Mr Mumford submitted that the recap telex of 11 December 1998, the document relied upon as the foundation of the plaintiff’s case, was not in the form that one would expect of a guarantee and was a document almost entirely connected with setting out the detailed terms of the charterparty as had been concluded.

29. He argued that it was “beyond serious argument” that the ‘guarantee’ evidenced by the telex was not the guarantee itself but merely a provision for a future guarantee – it did not, for example, say “are guaranteed”, or words clearly to that effect.  He maintained that no terms of any such guarantee were agreed by Carriers or Simpson Spence or Oriental Union, let alone with his client IPH, which was not privy to the telex nor, it seemed, had even been sent a copy of that telex.

30. He repeated the argument that nothing subsequently had been done towards actually obtaining a guarantee from the 1^st defendant, or for that matter securing any sort of confirmation from the 1^st defendant in terms of that which now was alleged to be the guarantee; in fact, he said, the so-called ‘guarantee provision’ was not even included within the working copy of the charterparty.

31. The short point, therefore, said Mr Mumford, was that no-one – owners, brokers or charterers – had ever approached his client, the 1^st defendant, before the recap telex or at all, and that IPH did not feature within any of the documentation save and except when referred to by others.  The 1^st defendant had not been asked if it was willing to act as guarantor, and no confirmation had been sought from it subsequent to the telex – indeed the 1^st defendant has, and had, no documents whatever relevant to the case.

32. He argued that the 2^nd defendant broker had not been acting for the 1^st defendant at all, and that it was the 2^nd defendant alone whose name appears on recap telex VDM 9676.  Moreover, the 2^nd defendant did not claim to have had authority from the 1^st defendant in this connection, and there was no evidence that the charterers had authority, which could not be implied.

33. As for the matrix of facts, he submitted, this was “equivocal”.  All that it demonstrated was that at one time the plaintiff had been keen to obtain a guarantee, and the failure to pursue the matter and to obtain one could be due to a number of causes, the most likely being a fall in freight rates for that part of the world over the Christmas period.

34. Mr Bhavnani, who appeared in person, said nothing at all.

Decision

35. In deciding this case I have no intention of indulging in speculation as to that which may, or may not, have occurred, and for what reason.

36. This is purely a matter of documentary construction.

37. I have reflected upon the sequence of telex correspondence, culminating in the recap telex of 11 December 1998, which is now said by the plaintiff to constitute the operative guarantee.  I have also reflected upon the arguments variously advanced.

38. I am unable to conclude that the recap telex, taken by itself or in conjunction with other telexes which were part of the documentary stream forming the inter-broker negotiations, constitutes the guarantee alleged by the plaintiff to have been made by the 2^nd defendant, Simpson Spence, for and on behalf of the 1^st defendant, IPH. 

39. I so hold.

40. In my judgment the correct analysis of the position is that these words form a contractually enforceable promise, by the 2^nd defendant broker on behalf of charterers, to owners, through their broker Carriers, that a guarantee would be provided from the charterer’s parent, IPH. 

41. The consequence of this promise was that if such a guarantee were not to be forthcoming before the time for performance by owners under the charterparty, owners would be entitled to treat such failure to procure such a guarantee as a repudiatory breach, and to terminate the charterparty on that basis.  In other words, had the issue been pursued (which we know that it was not), and had the charterers refused to provide a guarantee in due time, such refusal would have constituted a renunciation of the charterparty contract as contained in or evidenced by the fixture recap of 11 December 1998.  In purely contractual terms, in this eventuality there would have been a failure by charterers to comply with a condition subsequent, and the owners would have been released from the contractual obligations otherwise arising pursuant to the charterparty.

42. The short point, therefore, is that whilst this telex recap contained no operative guarantee – there are no words to the effect of “we hereby guarantee” or anything of that sort – nevertheless there was a measure of protection for owners’ position in that if and in so far as a guarantee was not forthcoming from IPH, as had been promised, as a matter of law owners did not have to comply with the charterparty and to provide charterers with the “Cape Horn”, and accordingly could have terminated the contract for breach of condition.

43. That this was not done, for whatever reason, is a matter of history.  The fact that owners did not pursue charterer’s promise to provide a guarantee, which no doubt provided a measure of commercial comfort as to performance of the charterparty from an entity with discernible assets, and instead had opted to continue with their contractual obligations until they terminated on the basis of charterers failure to pay charterhire, may well be unfortunate but, ultimately, is nothing to the analytical point.  And it is the analytical case, as opposed to the court’s perception of the broad merits, which must govern the legal conclusion.

44. I should add that in the course of argument my attention has been drawn to a number of cases, in particular the judgment of Steyn J (as he then was) in Navrom of Romania v. Seapako SA & Anor (unreported), 16 May 1999, and The “Anangel Express” [1996] 2 Lloyd’s Rep 299, a decision of Waller J in the Commercial Court.  I mean no disrespect when I say that although such decisions are of interest, each case must depend upon its own facts, and in coming to my conclusion in this case I have had regard solely to the words of the documents and to basic principle.

45. In light of this finding, therefore, the plaintiff’s case against all three defendants must fall away, and strictly there is no requirement for the court further to consider the issue of the 2^nd defendant’s breach of warranty of authority, the only other issue that Mr Coleman canvassed in closing submission; given the decision that I have made it follows that there is nothing upon which such a plea of breach of warranty of authority can ‘bite’.

46. Lest I be wrong in my primary conclusion, however, I should say a few words on this latter question.

47. Mr Sussex submitted that there is nothing on the present evidence which establishes that Mr Ted Chan, of Simpson Spence, was acting other than for charterers.  He made the point that a situation wherein an agent wears two hats and acts in a dual capacity – in this case for charterer and putative guarantor – conceptually was possible, but was unusual, and that in order to establish this fact specific evidence on this issue would be required, and demonstrably there was none in this case.  As to the telephone call with Mr Chan to which Mr Klitsas had referred in his oral evidence, and to which no reference could be found in his witness statement, he noted that Mr Klitsas had not gone so far as to state that Mr Chan had confirmed to him that he also was acting for IPH as well as Oriental Union, making it clear that this was his assumption in light of the situation as it was developing during the course of the negotiations.

48. In short, said Mr Sussex, there simply was no evidence sufficiently probative of the contention that in this instance Mr Ted Chan was doing any more than acting qua charterer’s broker.  Had this remained a ‘live’ issue in this case, I would have been inclined to accept this submission.

49. In terms of breach of warranty of authority, however, Mr Sussex introduced an alternative argument arising out of the procedural situation wherein at this trial no evidence had been called by any of the defendants. 

50. His contention was this.  Where a plaintiff sues a defendant upon a contract that purports to be made on his behalf, it is open to the defendant to say ‘this is not my contract, it was issued without my authority’.  However, in such instance an evidential burden necessarily falls upon the alleged guarantor, in this instance IPH, to make good any such proposition thus advanced, which would have involved calling evidence to demonstrate that Mr Ted Chan of Simpson Spence indeed had had no authority purportedly to enter into any such contract on its behalf.

51. However, said Mr Sussex, no evidence had been called by IPH, and accordingly it must follow that absent any such evidence disputing the authority of the 2^nd defendant to enter into this contract, such lack of evidence necessarily resulted in the lack of authority point falling away, because this was something which, on the state of the evidence in this case, could not be proved, and the only way in which a breach of warranty plea could be established was if such warranty was shown to be untrue.

52. Although Mr Mumford was at pains to dispute this contention on behalf of IPH, and although I do not have to decide the point, it seems to me that Mr Sussex’s logic must be correct – albeit, as matters have turned out, this argument would be relevant only if and in so far as the primary decision in this case were held to be wrong.

53. Finally, and for the sake of completeness, I formally record that on behalf of the 1^st defendant Mr Mumford eschewed reliance upon any Statute of Frauds argument, as did Mr Sussex, at least in terms of the recap telex which bore the name of Mr Ted Chan, although as I understood the position, and in so far as the earlier telex of 7 December 1998 from Mr Klitsas to Mr Chan were to be regarded by the court as part of an operative guarantee (which in fact is not the case), he reserved his position.

Order

54. As the result of the foregoing judgment the Order of this court therefore is as follows :

The action by the plaintiff against the 1^st, 2^nd and 3^rd defendants is dismissed.

There is to be an order nisi that the costs of this action are to be to the 1^st, 2^nd and 3^rd defendants, such costs to be taxed if not agreed.

As to taxation of the costs of the 1^st defendant, I decline to certify the case as fit for two counsel.